Some of the UK's biggest insurance companies are spending in excess of £100 million in organising their data to prepare for the implementation of Solvency II, according to a former Financial Services Authority (FSA) executive.
Simon Kirby, who now works for data management and business analytics vendor SAS, told journalists at a briefing this week that on average insurers are spending between £30 million and £60 million on Solvency II preparation, but he had seen examples of spend reaching £100 million.
"It's interesting because although investment in technology is a big part of that, a much bigger investment is the knowledge. At least half of what insurers spend is on consulting," said Kirby.
Kirby spent over 10 years working for the Royal Bank of Scotland (RBS), but also had a two-year stint at the FSA serving as a Solvency II specialist.
Solvency II regulation will require insurers across the EU to increase capital requirements and better manage risk in an attempt to reduce the possibility of consumer loss or market disruption. This requires insurers to implement new data governance policies to improve transparency and reduce risk.
The regulation is expected to come into force on 1 January 2014, but has been delayed a number of times due to on-going complaints from the insurance industry. Kirby argues that the regulation should have been implemented in stages to ease the pressure on firms.
"If I'm really honest the regulators should have broken this up into bite-sized chunks and delivered it in steps. They have tried to do a massive step-change by harmonising and bringing together many different directives," he said.
"We could be some way down the line if they had just taken it slowly. For example, we could have first focused on risk management, harmonised that across Europe, then moved on to calculations, harmonised that and so on."
He added: "But to do it all in one go? I wouldn't be surprised if the implementation date is delayed yet again."
Seamus Kyle, solutions consultant at data management vendor DataFlux, also warned insurance companies that they need to move away from a 'spreadsheet culture' if they are to fully follow guidelines set out by Solvency II.
"Insurance companies love spreadsheets, they seem to be wedded to them completely. They are great, they do great things, but are they the best environment to manage data throughout the entire lifecycle that Solvency II requires? The short answer is no," said Kyle.
"They aren't manageable enough. I think there is going to be a bit of pain and a bit of change in culture required, but I don't see how spreadsheets are consistent with the level of scrutiny around data management practices that is envisaged in the Solvency II regulation."